Good, I own COP as well. I believe it still needs FERC approval, but that is suppose to be less of a problem to get . One facility in Louisiana got FERC approval last year. A few more approvals and capacity may be available to export more than 25% of US production. That is years away though.
Yes, export approval for NG is a long term positive event. I hope they keep approving more projects. I can see potential demand from China, and maybe Japan and Europe as they move away from nuclear.
One of the biggest issues for BBEP has been the drop in NG hedges from $8 to $4-5 now. One of the main reasons they are having difficulty covering the distribution. I hope they don't lock too much in at the low prices further out, although I think it may be years before a big rebound.
World price may also drop a bit as more exports come on stream worldwide.
You are right that getting export approval for LNG is probably the crititcal things to maintaining a higher price level. Otherwise it seems we be in an excess supply situation for quite a while. Some self serving interests may be able to block it, or maybe just slow it down and limit it. What happened to free trade and private property?
I believe they are just gathering signatures to get on ballot, at this point. May not get enough signatures and it may not pass. I don't think a majority supports a ban, when jobs are involved and no serious risk has been established. Governor does not support the ban.
Still, one more issue to worry about. BBEP has a fair amount of gas reserves in Michigan. I think most are developed with shale fracking.
When I looked at it, it seemed that most of the comp was stock that vested over time, not options. I agree that options are a bit more tricky, but even in that case, one could look at the value of the options or the real cash cost that it take to buy similiar options to offset the potential dilution.
As I said, I look at non-dilutive sustainable cashflow. Of course, one could just ignore the non cash comp. But I would pose a question. Would you prefer the company give $10MM in cash bonuses or $30MM in stock? One hits Ebitda and the other does not. I would prefer the $10MM is cash, although with the normal way of looking at distributable cashflow, the $30MM would look better. There may be some benefits to having management aligned with shareholders, so in equal amounts I would defintely go with giving $10MM in stock instead of cash. So, there is some tradeoff.
My way allows a better way to compare different companies. If they all have similiar non cash comp, then it would not make much difference. However, it will penalize a company that dilutes shareholders vs. one that does not. It also gives a better sense of how sustainable the cashflow is per share. If they add shares every year, the distributable cashflow per share will go down every year, everything else equal.
Of course there are other important factors, like return on growth capex, aquisitions, etc that will affect the long term growth in distributable cashflow as well.
There is more than one way to account for it , and different ways to evaluate a stock. This is just my preferred way to account for the compensation. It should not matter much if they give $20MM is cash or $20MM in stock in evaluating the economics of the business. Of course, after the fact, giving stock vs. cash might look better or worse depending on what the share price does. However that is only know with hindsight. I don't see why it makes sense to take out a cash bonus but not a stock bonus, at least in evaluating the business.
Technically you are right that it is not cash. But to look at on a non-dilutive basis, they would need to spend $20MM to buy back the stock they give to managment. So, to avoid the dilution, it does become a real cash flow issue.
I think the problem with just bumping the shares would paint a little different picture. My way makes the result the same whether they give stock or cash. Since they give out the comp every year it seems, I am adjusting for how much it would take to buy back the stock to calculate a "sustainable" distributable cash flow per share over time. Same reason we deduct maintenance capex to keep the cashflow constant over time (at least in theory, but that is another issue).
I just checked and they have increased shares by over 3MM over the past 3 years as part of the long term incentive plans. Shares outstanding have averaged 75MM or so, so that is a 4% dilution or over $0.80 on a $20 price. Cost would be $60M+ to buy back those shares now.
Of course this is not just a BBEP issue. To compare other MLPs one would have to look at their non-cash comp as well.
thanks. I like to calculate the distributable cashflow on a non-dilutive basis to get to the true economics of the unit holder. They add back non-cash comp to calculate Ebitda, and I like to subtract it back out. Why? Because otherwise you have to factor in dilution to get the true economic yield.
Let's say management gives gives 1MM units (1% of outstanding in this case - worth $20MM) to themselves every year instead of $20MM in cash. As a shareholder are you really better off? On average no. Everything else equal, the shares will drop by 1% (or $0.20/unit) due to this dilution, every year they do this. So, your true return is the $1.80 distribution less the $0.20 capital loss or $1.60 net. Ignoring fluctuations due to other factors. However, if you just look at gross EBitda, you would calculate the same cashflow whether they give out the stock or not. So, it does not capture this "cost". Clearly we are better off without the dilution.
By doing this, I can accurately compare one MLP to another.
Having said that, one would really need to examine the compensation plan to figure out the appropriate adjustment. I have not done that with BBEP for a while. For now, I am assuming that the accountants charge $20MM is a fairly accurate representation of the true cost to unit holders.
Right. And they just issued 15MM, so about 100 outstanding now. I should have noted that all of my numbers were for 2013.
The company came out with guidance last week. I calculate non-dilutive distributable cashflow at roughly $1.73/share. Here is my breakdown: Ebitda at high end is $340MM - interest of $70MM - maintenance capex of $75MM - $22MM in non-cash comp (approx. - to offset potential dilution) = $173MM. Shares outstanding after last offering is roughly 100MM (need to check that). So, 173/100 = $1.73/share. Not even covering the distribution.
Although the capital structure is more sound than previously: less leverage and more fixed long term financing. So, that would argue for a higher multiple to distibutable cashflow than the stock had in the past.
They are also spending $180MM in growth capex, which must be boosting the EBitda this year. Without that, it might look a bit worse for this years cashflow.
Hedges for next year look worse for gas, but a bit better for oil. Perhaps a slight negative going forward. What has really hurt them is the drop in gas hedges from $8+ a couple years ago, to $5 and below going forward.